Important StoriesIndia-US bond yield gap tops 250 bps as G-Sec yield hits 7.48%; FPI inflows uncertainIndia’s October business growth hits 4-month high; hiring stalls, PMI showsParsi organisations oppose Tata Sons listing, ask PM to protect its private statusIMD Update: Possible Bay of Bengal Cyclone by Monday; AP, Odisha on AlertEuropean carmakers explore India manufacturing as German firms plan investmentsFollow UsFOLLOW US ON WHATSAPPHomeGO BACK TO HOME THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. India-US bond yield gap tops 250 bps as G-Sec yield hits 7.48%; FPI inflows uncertain Indian sovereign bond yields have climbed amid monetary policy concerns and oil price risks, while investors assess currency and hedging costs By Ashokamithran T Updated - October 23, 2026 at 12:20 PM.×ShareWhatsAppXFacebookLinkedInMessengerRedditMailhttps://www.thehindubusinessline.com/money-and-banking/india-us-bond-yield-gap-tops-250-bps-as-g-sec-yield-hits-748-fpi-inflows-uncertain/article71614839.eceCopy India’s 10-year government bond yield rose to 7.48%, taking the spread over the US 10-year Treasury yield to around 251 basis points. | Photo Credit: TimArbaev

India’s benchmark 10-year government bond yield rose to 7.48% on Friday morning, pushing the spread over the US 10-year Treasury yield to around 251 basis points, its highest level in four months. With the US 10-year Treasury yielding about 4.96%-4.97%, the India-US yield gap has moved above the 250 basis points (bps) mark, a level that bond market participants believe enhances the relative attractiveness of Indian debt but may not be enough on its own to attract sustained foreign portfolio inflows.

In June 2026, the differential was around 250 bps, with the US 10-year Treasury hovering around 4.5% while the Indian 10-year G-Sec was trading in the 6.90%-7.00% range. The India-US 10-year spread has fluctuated widely over the years. The differential touched much wider levels during 2020-21, when it exceeded 500 basis points, before narrowing sharply. More recently, the differential had compressed to nearly 160 bps in May 2025 before widening again.

The widening has been driven largely by a sharp rise in Indian bond yields amid expectations of tighter monetary policy and concerns over global crude oil prices, while US Treasury yields have remained elevated due to persistent inflationary pressures and fiscal concerns.

Market participants caution against interpreting the wider spread as a direct signal of impending foreign buying. “Now FPIs shall look for risk-adjusted returns. I would not expect the widening of the India-US 10-year spread to 251 bps, by itself, to trigger a meaningful revival in FPI inflows,” said Venkatakrishnan Srinivasan, Director, Rockfort Fincap LLP.

“A sustained return of foreign buying would require more than a wider spread: ideally, a stabilising rupee, lower hedging costs, easing crude prices and evidence that Indian yields offer an attractive risk-adjusted return,” he said.

He added that investors should focus on actual purchases through the Fully Accessible Route (FAR) and movements in the rupee forward market rather than infer renewed foreign demand solely from a wider yield differential.

The logic is straightforward. While a larger yield gap increases the carry available to foreign investors, their realised returns are also influenced by currency movements and hedging expenses. Any depreciation in the rupee or a rise in hedging costs can significantly erode the additional yield on offer. Analysts note that foreign investors typically assess effective returns after adjusting for these factors rather than comparing headline bond yields alone.

For the domestic bond market, the move above 7.45% is significant because it takes the benchmark yield closer to levels that many market participants consider fair value under a scenario of one additional policy rate hike.

Srinivasan expects the 10-year yield to remain within a broad 7.25%-7.60% trading band. “My range is still at 7.25% to 7.60%. Any sharp movement in crude can move yields sharply in either direction. The above yield range is after adjusting for another 25 bps repo rate hike in December.”

“Anything above or below this range may not sustain on a durable basis without further monetary policy action. My immediate target for the 10-year G-Sec is 7.50%, after which the market could become extremely volatile,” he said.

Foreign funds have sold more than Rs 3 lakh crore worth of Indian equities over the past 10 months alone and nearly Rs 5 lakh crore during calendar years 2025 and 2026. For now, the widening India-US yield differential offers support to the investment case for Indian sovereign bonds. However, unless accompanied by currency stability, favourable hedging dynamics and moderation in oil prices, bond dealers believe the wider spread alone is unlikely to trigger a meaningful return of foreign capital to the debt market.

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